Wednesday, January 26, 2011

Our “Sputnik Moment”

My reaction to the SOTU Address was a lot like John Boehner’s.  I was bored silly (although I’d like to think that, even in the confines of my own living room, I did a better job of hiding it). For my part, the most intriguing thing about Obama’s speech was the bit about this being our “Sputnik moment” (my emphasis):
“Half a century ago, when the Soviets beat us into space with the launch of a satellite called Sputnik¸ we had no idea how we'd beat them to the moon. The science wasn't there yet. NASA didn't even exist. But after investing in better research and education, we didn't just surpass the Soviets; we unleashed a wave of innovation that created new industries and millions of new jobs.
“This is our generation's Sputnik moment. Two years ago, I said that we needed to reach a level of research and development we haven't seen since the height of the Space Race. In a few weeks, I will be sending a budget to Congress that helps us meet that goal. We'll invest in biomedical research, information technology, and especially clean energy technology – an investment that will strengthen our security, protect our planet, and create countless new jobs for our people.
The Sputnik analogy warrants a little examination because it illuminates as much where it breaks down as where it holds. Obama resorted to it as part of his argument that, even as we’re staggering under the weight of massive public debt, it’s unwise to scrimp on “public investment” in essential public goods, and in research and development in particular. That was all Fred Kaplan needed to hear. Consider his elaboration on the macro-economic lesson Obama’s drawing from the Kennedy administration’s response to Sputnik:
“John Kennedy ran for president in 1960, promising a ‘new frontier’ founded on ‘vigor.’ Early in his term, he directly responded to Sputnik in two ways: He poured money into the Minuteman ICBM program (both before and after he realized that the missile gap was a myth). And he pledged to land an American on the moon by the end of the decade.
“In the spring of 1959, Texas Instruments had introduced a new technology called the microchip. But it was very expensive and generated no demand from the private sector. However, these tiny chips would be needed to power the guidance systems in the Minuteman's nose cone—and in the coming Apollo program's space capsule.  "It was the Pentagon and NASA that bought the first microchips. The demand allowed for economies of scale, driving down costs enough so that private companies started building products that relied on chips. This created further economies of scale. And so came the inventions of the pocket calculator, smaller and faster computers, and, decades later, just about everything that we use in daily life.”
At least to this non-economist, public investment in R&D makes a lot of economic sense. Successful R&D typically generates economic benefits to people other than those directly involved in financing and conducting it. Generally speaking, these benefits are unforeseeable in the sense that, even if we suspect that there will be some such benefits, we can't identify them with any specificity in advance. So even when a private investment in an unproven technology pays off handsomely, it typically won’t enable the investor to capture all the economic value generated by his investment. It follows that, collectively, private investors will tend to make sub-optimal investments in R&D. Wisely directed public investment can make up for the shortfall.

So far so good for the Sputnik analogy. But how do we know what counts as a “wisely directed” public investment before we’ve made it? In the Sputnik case, Kennedy decided to invest public dollars in Minute Man missiles and the Apollo program because he thought that the expected payoff, calculated in the currency of cold war national security, justified the costs. Because they were unforeseeable and therefore unforeseen at the time of the investment, “the inventions of the pocket calculator, smaller and faster computers, and, decades later, just about everything that we use in daily life” could only have been unintended byproducts of the investment decision. As such, they couldn’t have been part of the justification of that public investment in the first place.

That doesn’t mean that well-directed public investment in R&D demands supernatural clairvoyance. According to Kennedy’s cost-benefit calculus, the Minute Man and Apollo investments made sense independent of any speculation about their remote benefits. And the fact that we can't predict technological and economic progress with any specificity (if we could we'd already be enjoying it) doesn't mean that it's unwise to subsidize institutional platforms like research universities and the National Science Foundation that are adaptable to a wide range of unforeseeable R&D applications--at least as long as they’re not too likely to degenerate into instruments of political patronage.

Yet it doesn’t sound like the public investments Obama is talking about can be justified in anything like these terms. Consider his promise to invest borrowed dollars in “biomedical research, information technology, and especially clean energy technology."  How can Obama be so sure that these investments will really "strengthen our security, protect our planet, and create countless new jobs for our people”? Does that sound to you like a program that can be justified in terms of anything resembling the concrete cost-benefit analysis that drove Kennedy’s response to Sputnik?  Think about how well ethanol subsidies are working out from an economic and environmental standpoint and ask yourself how confident you are about the allocative efficiency of the political process.  Does it really make sense to invest borrowed public dollars with the intention of reaping their unintended rewards? 

I don't think any of these questions are unanswerable.  Yet I can't help being surprised that, at a time when Republicans are surfing politically on a wave of public distrust of government, Obama didn't think he had to answer them.

1 comment:

Mean Voter said...

You make some excellent points. I've been thinking -- ever since hearing the speech last night -- what on earth is Obama thinking? Does he think most Americans are going to buy this nonsense - at least any Americans who understand what Kennedy did and what Sputnik meant?

There is answer to your question: "Does it really make sense to invest borrowed public dollars with the intention of reaping their unintended rewards?" And the answer is no. As you so correctly point out, if it made good economic sense to invest in "biomedical research, information technology, and especially clean energy technology," private industry is either already doing or has decided it's not worth it. Can the government drive our economy by making the right investment decisions? Spare me. (again, you cite ethanol as Exhibit A) The only way this has worked in the past is with military and defense spending, as you so correctly point out.

This is not a Sputnik moment. This is a hail mary moment for Obama.